As was the case last year, those of us involved with affiliate marketing in Mississippi must remain vigilant because the affiliate tax has been proposed again this year. Introduced by Representative Jessica Upshaw on January 4, 2011, House Bill 363 specifies that a “person soliciting remote sales through representatives in this state is subject to [the] use tax.” The bill, if enacted into law, would take effect July 1, 2011.

I have several problems with this bill that I elaborated on last year when I wrote about Senate Bill 2927 which ultimately died in committee. In short, though, this bill would define my work as an affiliate marketer as equivalent to owning a physical storefront. For example, if I am an affiliate or associate of an Internet retailer like Amazon and put an Amazon ad on my website then this bill equates my association with Amazon as meeting the “nexus,” or physical presence, requirement for state sales tax purposes. The result of my association is that Amazon would then be required to collect sales taxes for orders made by Mississippi residents. Let me state this again because the implications are staggering: my ad on my website (which could be likened to a billboard along a highway) means that an out-of-state entity (any retailer I’m associated with via an affiliate marketing relationship) has to collect sales taxes on every order coming from Mississippi.

As I see things, HB 363 is fraught with both legal and practical problems. For starters, the Supreme Court in 1992 (Quill Corp. v. North Dakota) declared that electronic associations do not meet the nexus (physical presence) requirement for states to collect sales tax from out-of-state business entities selling to residents of their state. From a personal point of view, this bill could put me (Shopping-Bargains.com) out of business by drying up our primary sources of revenue. When other states have adopted legislation similar to HB 363, Amazon and many other online retailers have simply severed their affiliate relationships within those states. Put another way, these online retailers simply dropped their affiliates in those states so they did not meet the new requirement. The unintended result: (1) little or no new sales tax collections and (2) more unemployment as people like me (plus employees) who depend on affiliate marketing revenue had to relocate their businesses to other states or find a different line of work.

On January 18, 2010, Senator Tommy A. Gollott of Mississippi Senate District 50 introduced SB2927 (pdf link or here for current status) which attempts to redefine the “nexus requirement” for online or “remote” sales to include affiliate web sites such as mine (like Shopping-Bargains.com). I quote from this bill:

A person is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the person enters into an agreement with a resident of this state under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the person. This presumption may be rebutted by proof that the resident with whom the person has an agreement did not engaged in any solicitation in the state on behalf of the person that would satisfy the nexus requirement of the United States Constitution;

Obviously this bill is of great concern to me since I make my living through “link[s] on an Internet Web site” that are compensated via “a commission or other consideration” for referring customers. (The attempt to label affiliate relationships as constituting a nexus requirement has been called the Amazon Tax or the Affiliate Tax by many.) I have two major problems with the way this bill is written including the following:

1. The “nexus requirement” of affiliates is wrong since this issue was clarified in 1992 by the U.S. Supreme Court in their Quill Corp. v. North Dakota to mean a substantial physical presence.

Nexus is defined as “a means of connection”. The Quill decision addressed a dispute between the State of North Dakota and office supply retailer, Quill Corporation, over a computer software program and the collection of sales taxes. North Dakota argued that the computer program created a nexus or physical presence but the U.S. Supreme Court determined that it did not constitute the required physical nexus and so the state could not require Quill to collect sales taxes (Quill had no retail establishments or sales force in North Dakota.)

With the Quill decision in mind, how does an affiliate relationship via Internet links constitute a physical presence that could pass this Supreme Court test? An affiliate agreement is virtual which means it is even less of a physical presence than one could argue floppy disks were in 1992. Does my electronic relationship with out of state online retailers meet the nexus requirement? In my opinion it does not even come close.

In many ways an affiliate relationship with a merchant could be compared to a sign company renting billboard space along the highway. The merchant does not own the signs just as the merchant does not own my or any affiliate’s website. The merchant pays the sign company to display their message just as the merchant pays me to promote theirs. How does such an arrangement constitute nexus?

2. New York and North Carolina passed similar tax schemes and hurt small businesses (and ultimately their tax base).

The attempt by two states to apply sales taxes to Internet or “remote” sales were somewhat successful; however, the consequences were disastrous for many small businesses. When New York and North Carolina passed such taxes, the result was the massive removal of affiliates from those states by Amazon and other online retailers. In short, many online retailers simply removed their New York and North Carolina affiliates and thus, overnight, eliminated this supposed “nexus requirement”. The dismal results in these two states were these: (1) still no collection of sales taxes in those states because these online retailers had no affiliates in those states, and (2) substantial loss of income for many Internet businesses that relied on Amazon and other affiliate income to stay in business. Needless to say, the bottom line for these states were lost jobs as many entrepreneurs saw their incomes decimated. Of course lower business incomes means more layoffs, fewer new employees are hired, and a reduction in income and payroll tax collections.

There are tens of thousands of affiliates in other states and even other countries that are more than willing to pick up the slack for those who saw their relationships suddenly severed. Simply put, the law does not guarantee that sales taxes will be collected but it does mean that state’s affiliates will probably be dropped. Do we want this for Mississippi? Certainly not. (Amazon has also sued New York over this tax feeling it violates federal law and U.S. Supreme Court decisions. Overstock.com also sued New York challenging the constitutionality of this law.)

Now What?

I don’t want to just point out problems and not offer solutions. I know the states are losing sales tax revenues due to Internet sales. I think, however, attempting to link online affiliate relationships as equal to a “substantial physical presence” is the wrong way to address this problem. It is shortsighted and likely to backfire due to many unintended consequences.

On Friday, November 20, 2009, I’m speaking at a special 1-day affiliate marketing workshop presented by the South Florida Interactive Marketing Association (SFIMA). This workshop is moderated by Jay Berkowitz of TenGoldenRules.com fame and keynoted by Julien Smith, co-author of the bestselling book Trust Agents. The workshop presents various perspectives on affiliate marketing — from affiliate networks to affiliates to agencies — as well as affiliate marketing strategies, techniques and practical tips. Also on the agenda is a discussion of legal and tax issues surrounding affiliate marketing.

From time to time I figure out or, more likely, somebody shares a tiny bit of wisdom or a tip that is really, really helpful to me. Those nuggets are the kind of things I don’t want to forget and I want to share with others so they can benefit also. Here is one such tiny tip that has helped me lots with changing diapers on a squirming baby, especially a baby who wants to “help” me change the diaper by reaching down there.

Newborn babies may cry and kick (and occasionally “leak”) but that’s about all the trouble they make during diaper changes. As babies grow, though, they become more curious and more wiggly and that’s when diaper changing becomes more challenging, especially for those really dirty times. And that’s exactly when the reaching problem becomes very apparent and leads to dirty hands and then dirty clothes and then a dirty changing table and so on.

I wish I could claim this tip as my own, but no, I learned it from my wife who has changed far more diapers than I have. I was changing a squirmer one day and she warned me that he had moved to the reaching stage. She suggested I give him something special to hold during the diaper change. I was amazed at how well it worked. He was so fascinated with the new thing to hold that he completely ignored reaching into the diaper.

I’ve been interested in politics and public service since I was a teenager. I’ve often been dissatisfied with the way government works (and in many cases doesn’t work) and considered running for office. About a week ago I decided it was time to stop just talking about government and to do something about it by running for a seat in my local government.

So, with that in mind, yesterday I filed papers to run for alderman (what we call our city council members) for my local ward (district) in Starkville. While I list eight priorities on my campaign website at MikeAllen.com, in short, I want to see Starkville become the kind of community our children will want to make as their home when they grow up and establish their careers. That means we have a lot of work to do. I’m excited about the prospect of being part of the solution and I look forward to the campaign and public service.

As most of my family and friends know, I have been involved in affiliate marketing for almost 10 years now. For those who don’t know what affiliate marketing is, affiliate marketing essentially means I help other companies sell their products and/or services online in exchange for a commission or “finders fee” when my efforts result in a sale for them.

I was recently honored with perhaps the largest award in the affiliate industry — the Affiliate Summit Pinnacle Awards “Affiliate of the Year.” I am very honored and wanted to share something that Allison Matthews, Vice President of Membership and Community Development at the Greater Starkville Development Partnership, wrote for the local Partnership Newsletter about this achievement.

Mike Allen, president of Shopping-Bargains.com, LLC received the “Affiliate of the Year” award at the third annual Affiliate Summit Pinnacle Awards Gala January 12 in Las Vegas.

Mike started his online business as a hobby in February 1999, but left MSU at the end of 2003 to work on the business full time. Shopping-Bargains.com now lists coupons and deals for about 2,000 online stores in the U.S. and U.K. markets. Mike has 6 part- time employees.

The Affiliate Summit Pinnacle Awards are affiliate marketing’s most prestigious, competitive honor. Award winners are recognized because they are innovative leaders with vision and influence.

More than 3,200 people attended the Affiliate Summit earlier this month. The Summit was founded in 2003 for the purpose of providing educational sessions on the latest industry issues and fostering a productive networking environment for affiliate marketers.

Needless to say, I did not achieve this award alone. I have hundreds of great partners to “affiliate” with and some wonderful employees. I have a very supportive wife and family who have given much (including evenings and even holidays) to allow me to work on my dream of business ownership via Shopping-Bargains.com. I also was blessed with the votes of my peers who chose to honor me in such a way. I sincerely thank each person for their part in my success and the successes of my company. It is a privilege to work with so many good people.

Today I read a very interesting article by Mark Stevens entitled Sales Lessons From a Fly Fishing Master and found at Entrepreneur.com. Mark Stevens is a bestselling author and the CEO of MSCO which is a management and marketing firm. In this article, Stevens offers seven lessons about sales and being a salesman which I found very valuable. I quote these nuggets below:

1. If there are two versions of you, the salesperson and the civilian, people will see you as disingenuous. There must be only one you.

2. Relate to people exactly as you are. Imperfections are not seen as reasons not to do business with you. Just the opposite, your willingness to be transparent is seen as vindication that you are the genuine article — a trustworthy individual one can reliably do business with.

3. Tell your clients and prospects what they don’t want to hear when you believe that the painful medicine will be in their best interests. They may be upset with the messenger in the moment of truth, but you will stand out from the yes-men when the dust clears.

I recently read a helpful article on advertising, sales and marketing. It was written by Adrian Miller and entitled “How to Beat a Sales Slump.” In this article, Miller offers five pieces of advice for digging oneself out of a sales slump.

Since slumps seem to be inevitable and affect virtually all entrepreneurs, I felt these thoughts were noteworthy. I also wanted to share them so I (or you) will remember them next time either of us experiences such a slump.

1. Go After the Low Hanging Fruit.

In essence, this means setting attainable targets for the short-run by going after proven prospects that can produce revenue now. Now is not the time to go after the long-shots that have a high probability of failure.

2. Get Critiqued.

In short, we all have blindspots and can all use some good advice. It’s wise to seek out an honest evaluation of your abilities from an objective source. Ask somebody you respect who is knowledgeable of your industry or marketing needs to evaluate your performance and to suggest ways to improve.

[An objective evaluation (with both free and paid options) along with other resources can be obtained online at YourPitchSucks.com. I know the founder Jim Kukral. He offers a wealth of information that can improve your marketing and help fine-tune your sales message.]

3. Read Up.

Take time during the slump to improve yourself. Read and learn from others. Look for ways to be more innovative. Learn new techniques.

4. Stop the Blame Game.

Whether the fault is your own or that of others, the bottom line is you are in a slump and must get out of it. Don’t focus on placing blame but instead on finding answers (solutions) that address why you got into the slump and how to get out. Focus on developing strategies that will improve your situation.

5. Try Something New.

If you repeat the same thing that failed the last time then chances are it will fail this time also. Don’t repeat failures. Explore new strategies, methods and options. You just might find something that is much better than you ever dreamed possible.

So, with thanks to Adrian Miller for spawning the above tips, I challenge everyone to look for ways to do more with less. Identify the time and resource wasters and eliminate them. Focus on what works and produces success now and do more of it now. Then look for ways to innovate and grow that success into more and bigger successes down the road.

I am taking part in The FORUM which is a one-year leadership development initiative for Starkville and the Oktibbeha County community in Mississippi. It is sponsored by the the Greater Starkville Development Partnership and managed by the Mississippi State University Extension Service.

One of our class projects is to do an individual research project on a historical person, event or structure that helps make Oktibbeha County what it is today. I chose to research Dr. Douglas L. Conner. My reasons for this choice were twofold: 1) I knew little about him and 2) I had for nearly ten years been driving on a street named after him.

For this project I was able to read his autobiography entitled A Black Physician’s Story: Bringing Hope in Mississippi (1985) which was written with long-time friend and Mississippi State University William L. Giles Distinguished Professor John F. Marszalek. I also was able to interview his wife and daughter. His life was full and his story very compelling. Though he lived to be 78 years old, he never retired.

In closing, I was honored to give this presentation to my class on November 13, 2008. I found that date especially fitting since it exactly marked the ten year anniversary of Dr. D. L. Conner’s passing. I was also honored to share a portion of the story of a man who gave more than 50 years of his life in the service of my community.

Today I completed a two-week study at my church entitled “A Look at God & Government: Biblical Underpinnings of American Political Authority.” In this study, we looked at a variety of things including the following:

Why government is needed

Why God established government

Biblical responsibilities of government

Foundations and defining features of our American government

Christian responsibilities to government

Civil disobedience

Voting

I have included my presentation slides below in the following formats: